DWP Urged to Scrap Triple Lock and Adopt Australian Pension Model
The Department for Work and Pensions (DWP) is facing calls to abolish the Triple Lock mechanism for state pensions and replace it with a system modeled on Australia's approach. This comes despite the Labour Party government's commitment to maintaining the Triple Lock throughout the current Parliament.
Triple Lock Deemed Unsustainable by Economic Experts
The Triple Lock, introduced by the Conservative Party and Liberal Democrats coalition government, guarantees that the state pension increases annually by the highest of three metrics: inflation, average earnings growth, or 2.5%. However, economists warn that this system is financially unsustainable in the long term.
Laurence O'Brien, senior research economist at the Institute for Fiscal Studies, explained the core issue to the Express: "Ultimately, the triple lock is unsustainable because it leads to the state pension growing faster than the economy. This means ever higher taxes are needed to pay for it."
O'Brien emphasized that the Triple Lock "should not, and cannot, stay forever," highlighting its design flaw: "Think of it like pressing the accelerator after every shock, but never touching the brake. Inflation pushes up the state pension one year, earnings push it up the next, and nothing ever brings it back into line."
Proposal for a Smoothed Earnings Link
Instead of the current system, experts advocate for a "smoothed earnings link," similar to the model used in Australia. This approach aims to balance pensioner protection with fiscal responsibility.
O'Brien outlined the benefits of this alternative: "A better approach for indexing the state pension is to keep the best features of the triple lock while making the system sustainable and predictable. A good option is a 'smoothed earnings link', similar to that used in Australia."
This model would ensure that the state pension always rises at least as fast as inflation, safeguarding pensioners' purchasing power. Crucially, it would also anchor the pension to living standards over the long run without allowing costs to spiral unpredictably.
Balancing Protection and Affordability
The proposed Australian-style rule is designed to offer a more controlled growth trajectory. O'Brien described it as providing "the best of both worlds," where the system can "press the accelerator after shocks" but then allow the state pension to gradually return to an affordable level.
This reform is seen as essential given other pressures on public finances, such as increased defence spending. The current Triple Lock makes long-term costs difficult to forecast and control, posing a significant challenge to economic stability.
While the Triple Lock was introduced with commendable aims to protect pensioners from rising prices and ensure their incomes keep pace with living standards, its mechanism has proven to be overly generous. The shift to a smoothed earnings link represents a pragmatic solution to ensure pension sustainability for future generations.
